Financial Review 2019-20
I. L&T CONSOLIDATED
A. PERFORMANCE REVIEW
The Indian economy faced a challenging year in FY
2019-20. Post the general elections, the Indian economy
witnessed sluggish investment momentum on the back
of weak consumer sentiment, lower tax collections
and fiscal slippages. The stress in the financial system
due to non-performing loans led to risk aversion and
low credit growth. The demand destruction in vital
sectors such as real estate, automobiles, etc., led to the
slowing economic growth and absence of broad-based
private investment in industrial capex and infrastructure
development. The onset of the global pandemic at the
very end of the financial year led to the lockdown of the
country’s social and economic activity, adding further
impetus to the economic slowdown.
To counter these challenges, the Government along with
the RBI initiated several measures both monetary and
fiscal at various times during the year, viz. reduction in
corporate tax rates, capital infusion into Public Sector
banks, relaxation of External Commercial Borrowing
guidelines for affordable housing, Realty Fund for stalled
housing projects and periodic lowering of interest rates
in line with an overall moderated inflation trajectory.
The Government’s firm commitment to substantially
boost investment in infrastructure development, rural
electrification, airports, railroads, water supply &
irrigation, social sector, education and health is expected
to provide opportunities to the Company’s various
business segments; although in the near term, the
Company would be required to deal with the economic
fallout of the Covid-19 pandemic. Further, with the
Government’s focus on structural reforms and the launch
of the National Infrastructure Pipeline (NIP) of R 100+ lakh
crore, the Company expects the measures to improve
India’s long-term growth potential.
The global economy witnessed significant volatility
in 2019-20. The continued slump in manufacturing
coupled with challenges relating to growth, inflation
and employment, weakened the global GDP. Driven by
protectionist policies in developed economies, trade wars
intensified in various pockets across the world. The year
2019-20 also witnessed delayed Brexit, an oil price war
between Saudi Arabia and Russia, rising geo-political
tensions in the Middle East and the onslaught of the
global pandemic, leading to major lockdown measures
across countries. All these effectively created recessionary
conditions in the world economy towards the end of the
fiscal year.
Against the backdrop of such an environment, the
Group recorded satisfactory growth in order inflows
and revenues during FY 2019-20, though the impact of
the pandemic will inevitably be felt in the FY 2020-21.
Slowdown of infrastructure projects in multiple states
due to change in State Governments, macroeconomic
concerns and the systemic liquidity challenges slowed
down the growth plans of the Company for FY 2019-20.
The diversified portfolio of the Company coupled with the
acquisition and the quick integration of Mindtree Limited,
has however helped register reasonable growth at the
Group level.
Post the acquisition of Mindtree Limited during the
year, the entity has been consolidated as a subsidiary
from the second quarter of FY 2019-20. The acquisition
will help consolidate the Company’s position in the
IT-enabled services sector. In compliance with regulatory
requirements, the Company further diluted its stake in
L&T Technology Services (LTTS) to achieve 25% minimum
public shareholding during the year.
Shareholding in L&T Infrastructure Development Projects
Ltd (L&T IDPL) was also diluted to 51% on the partner
Canadian Pension Plan Investment Board obtaining
statutory approvals for conversion of Compulsorily
Convertible Preference Shares (CCPS) into a 49% equity
stake in L&T IDPL under a negotiated agreement. L&T
Shipbuilding Limited which was a 100% subsidiary
company has now been merged with L&T standalone
entity as an adjusting event after obtaining NCLT approval
to the scheme of amalgamation. Also, during the year
FY 2019-20 the Company exited its shareholding in L&T
Kobelco Machinery Private Limited by selling its stake to
its JV partner Kobe Steel Ltd.
The Company is on course to complete divestment of
its Electrical & Automation (EA) business to Schneider
Electric. The approval of Competition Commission of
India subject to fulfilment of certain conditions has
been received and the business has been classified as
‘discontinued operation’ from June 2019, pursuant to
which the previous year figures have been regrouped
wherever necessary. Progress is being made on fulfilling
the conditions precedent to the divestment.
L&T Metro Rail (Hyderabad) Limited, a subsidiary
company, successfully operationalized and commissioned
the last stretch of the metro rail during FY 2019-20,
thereby completing the full network of close to 70 km
in the city of Hyderabad. Another subsidiary company,
viz. Nabha Power Limited, which houses two units of
a thermal power plant at Rajpura in Punjab, received
a favourable Supreme Court judgement on its income
related disputes with Punjab State Power Corporation
Ltd. Also, in compliance with environment norms, this
subsidiary has placed an order for construction of Flue
Gas Desulphurisation system and work on this is in
progress.
313
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

As at March 31, 2020, L&T Group comprises 117 L&T Group achieved order inflows of R 186356 crore
subsidiaries, 6 associates, 25 joint venture companies during the year 2019-20, registering a growth of 9.1%
and 35 joint operations. Most of the group companies over the previous year, growth largely being driven
are strategic extensions of the project and product by international business. The year witnessed some
businesses of L&T, while the Hydrocarbon business is noteworthy order wins in thermal power, affordable
housed in a separate set of group companies to provide mass housing, a substation & transmission line project in
the desired focus and independent functioning. The Africa, gold beneficiation order in Saudi Arabia, residue
majority of the subsidiaries support L&T’s core businesses upgradation in refinery modernisation and an order for
and enable access to new geographies, products and offshore oil facilities in Saudi Arabia. Despite deferral of
business segments. Certain distinct service businesses
various prospects, Infrastructure contributed 55% of the
such as Information Technology, Technology Services,
total order inflow, while the share of Power increased
and Financial Services are housed in separate listed
from 2% in previous year to 6% in the current year on
subsidiaries. The development projects business resides in
receipt of a large value thermal order and increased
separate subsidiaries and joint venture companies.
ordering by thermal power plants for emission control
The Company continued on its journey of shareholder equipment to meet environmental norms.
value creation by focusing on cost efficiencies,
leveraging technology for productivity gains, efficient
Order Book
fund management and targeting select international R crore
opportunities beyond the Middle East. The Company’s 4.5%
400000 –
strong Balance Sheet, coupled with sound policies and
procedures and committed work force is helping it tide 320000 – 290780 303857
over the current volatile economic environment and will 61670 75038 25%
240000 – 21%
enable business to thrive and grow, once the environment
improves. 160000 –
79% 229110 228819 75%
Order Inflow and Order Book 80000 –

Order Inflow 0–
–

–
As at 31-03-2019 As at 31-03-2020
R crore
9.1%
250000 – Domestic   International

200000 – 186356
170817
150000 – 26% 45116 60094 32% Order Book Composition
R crore 6074
100000 – 2%, (2%) Infrastructure
68% 44130
74% 125701 126262 15%, (14%) Power
50000 –
Defence Engineering
4121
0– 1%, (2%) Heavy Engineering
–

2018-19 2019-20
Hydrocarbon
Domestic   International
9216 Others
3%, (4%)
Order Inflow Composition
15849
R crore 5265 Infrastructure 5%, (2%) 224467
4850 74%, (76%)
3%, (3%) 3%, (3%) Power
13822 102678 Defence Engineering
8%, (8%) 55%, (56%) Total Order Book: R 303857 crore as at March 31, 2020
Heavy Engineering
[Figures in brackets relate to previous year]
22135 Hydrocarbon
12%, (8%) IT & Technology
Services
Financial Services The Group crossed the R 3 lakh crore mark as at
20964
11%, (16%) Development projects March 31, 2020 with the Order Book standing at
2361 Others R 303857 crore. Infrastructure segment constitutes the
1%, (2%)
2233 12048 highest proportion of the consolidated Order Book at
1%, (2%) 6%, (2%) 74% share, though reduced from 76% as at March 2019,
Total Order Inflow: R 186356 crore during the year 2019-20
[Figures in brackets relate to previous year]
with increase in the share of the Power segment from 2%
to 5% on higher order inflows during the year.

314
The Order Book growth at 4.5% was constrained on review of awarded tenders by some state governments
deletion of some non-moving orders from the portfolio, leading to stoppage of work in the Infrastructure segment
mainly impacted by review decisions in the post-Covid for a prolonged period of time during the year. With the
scenario and change of Government in Andhra Pradesh consolidation of Mindtree Limited acquired in early July
during the Financial Year. The Order Book comprises of 2019, the composition of international revenue at the
27% from various State Governments, including local Group level increased to 33% in year FY 2019-20.
authorities. With major orders received from Public
Sector Undertakings during the year FY 2019-20, the Segment-wise Gross Revenue*
composition of the Order Book from that customer
segment increased from 35% to 44%. R crore 4850 5309 Infrastructure
3%, (4%) 4%, (4%)
Power
13822
International Order Book Composition 9%, (9%)
Defence Engineering
Heavy Engineering
2% 10% Saudi
Hydrocarbon
(3%) (12%) Qatar 22335
2% UAE IT & Technology
(1%) 28% 15%, (11%) Services
(17%) Oman 73777
0% Kuwait 50%, (53%) Financial Services
17445
(1%) Bangladesh 12%, (11%) Development projects
Africa 3205 2318 Others
24% Far East 2%, (2%) 3979 2%, (3%)
(23%) 7% 3%, (3%)
America
(11%)
Europe * includes inter segment revenue R 1590 crore for FY 20 and R 1700 crore for FY 19
5% 7%
(7%) (8%) ROW [Figures in brackets relate to previous year]
7% 8%
(10%) (7%)
Total International Order Book: R 75038 crore as at March 31, 2020
Despite the challenges faced in the Infrastructure segment
[Figures in brackets relate to previous year] and sharp deceleration of business activity in the last few
weeks of the year due to Covid-19, satisfactory growth
FY 2019-20 order inflow growth being driven by in the Segment Revenue for the year was achieved with
international business, the share of the international pick up of execution momentum mainly in Hydrocarbon
Order Book grew from 21% to 25%, with Saudi and Heavy Engineering segments. The composition of
Arabia and Africa contributing the majority of the IT&TS segment in the overall portfolio registered a growth
growth – resulting in their increased share in the overall of 400 bps achieved with consolidation of Mindtree on
international Order Book to 28% and 24% respectively. acquisition of control from Q2 FY 2019-20 onwards.

Consolidated Revenue from Operations Operating Expenses and PBDIT

Gross Revenue from Operations Operating Expenses and PBDIT

R crore 2019-20
7.6%
200000 – [% to revenue]

150000 – 145452 11.2%

135220 (11.3%)
48467 33% Mfg., Construction &
32% 43577 5.9%
100000 – Operating Expenses
(5.0%)
Staff Expenses
50000 – 68% 91643 96985 67%
15.9% Sales, Administration &
(12.9%) Other Expenses
0–
–

2018-19 2019-20 Operating Profit (PBDIT)

66.9%
Domestic   International (70.7%)

L&T Group recorded revenue of R 145452 crore during the
year, registering a growth of 7.6%. The growth however,
was below expected levels with execution impediments
of Covid-19 in the last few weeks of the year, coupled
with delayed clearances, right of way constraints and the
[Figures in brackets relate to previous year]
Manufacturing, Construction and Operating (MCO)
expenses for FY 2019-20 at R 97363 crore increased
by 1.8% over the previous year. These expenses mainly

315
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

comprise cost of construction material, raw materials and Profit Before Interest and Tax
components, subcontracting expenses and interest costs Segment-wise composition of PBIT for FY 2019-20 is
in Financial Services business. This represent 66.9% of represented below:
revenue, a decrease by 380 bps, mainly on account of
increased share of IT&TS segment as well as cost control
initiatives at the Group level. Segment-wise PBIT Composition
R crore 387 969 Infrastructure
2%, (2%) 6%, (5%)
Staff expenses for the year 2019-20 at R 23114 crore Power
increased by 32.3% over the previous year mainly on Defence Engineering
consolidation of Mindtree - adjusted for the same, 2679 Heavy Engineering
17%, (21%) 5207
Hydrocarbon
the increase is 10.5% on a like-to-like basis. Adjusted 32%, (36%)
IT & Technology
for IT&TS segment (where manpower augmentation Services
for revenue growth has led to an increase in the 236 Financial Services
3693 1%, (1%)
total headcount), the staff cost as a percentage to 23%, (21%) Development projects
576
revenue increased by 30 bps, representing normal 4%, (3%) Others
escalation. The Group has sharpened its focus on 1746 566
11%, (8%) 4%, (3%)
productivity improvement, digitalization and manpower
[Figures in brackets relate to previous year]
rationalization.

Sales and administration expenses increased by 27.3% Other Income

y-o-y to R 8647 crore - when adjusted for Mindtree
consolidation, the increase stands at 17.7% on a like-to-
like basis. The increase is mainly in Financial Services due
to higher credit cost and provisions in conformity with RBI
guidelines (issued consequent on moratorium relief given
to borrowers in the Covid-19 scenario). Other increases
that contributed to the rise include Expected Credit Loss
provisions for financial and contract assets, donations to
PM Cares fund and provision for write down of Yes Bank
AT1 bonds under regulatory mandate.
The Group operating profit at R 16329 crore for the year
2019-20 registered growth of 6.5% y-o-y. The EBITDA
margins for the year was lower by 10 basis points at
11.2%. Cost overruns encountered in some projects
coupled with slow progress in some jobs mainly in
Infrastructure segment impacted the operating margin.
The drop was partially offset by a favourable job mix,
coupled with execution efficiencies in Defence and
Hydrocarbon segments, and the reversal of provision on a
favourable arbitration award in the Power business.
Depreciation and Amortization charge
Depreciation and amortization charge for the year
2019-20 increased by 28% to R 2462 crore, compared
to R 1923 crore in previous year. The increase was largely
due to consolidation of Mindtree, full operationalization
of the Hyderabad Metro Rail concession and amortization
of Right of Use asset on adoption of the newly introduced
Ind AS 116 accounting standard in 2019-20.
Aided by profit on sale of liquid investments, interest
earnings and dividend income from treasury investment,
Other income at R 2361 crore, increased by 28.6% over
R 1837 crore in the previous year.
Finance cost
The interest expenses for the year 2019-20 at
R 2797 crore was higher by 55.2% over R 1803 crore for
the previous year. The increase was mainly attributable
to the higher interest cost in L&T Hyderabad Metro Rail
upon commencement of full operations, interest on
lease liability on application of Ind AS 116 and higher
level of borrowings in the standalone entity to fund
the higher level of working capital caused by the tight
liquidity conditions. Average borrowing cost for the year
FY 2019-20 increased to 8.1% from 7.9% in the previous
year.
Exceptional Items
There are no exceptional items during the year under
review. Previous year exceptional item of R 192 crore
(post-tax) represents write back of certain customer dues
upon realization based on favourable NCLAT order.
Tax Expense
Income Tax charge for FY 2019-20 (excluding tax charge
on discontinued operations) decreased to R 3263 crore
compared to R 4067 crore in FY 2018-19 on adoption
of tax ordinance resulting in lower effective tax rate,
partially offset by write-down of opening DTA for the
rate differential and write-off of opening MAT credit, due

316
to its unavailability under the new tax regime. Creation Consolidated Fund Flow Statement v crore
of DTA in 2019-20 for set-off of capital losses has also Particulars 2019-20 2018-19
contributed to the lower tax charge. Operating activities 6687 9100
Borrowings/(Repayment) of Borrowings 13874 4319
Consolidated Profit after Tax and EPS Treasury and dividend income 952 983
Consolidated Profit after Tax (PAT) at R 9549 crore for Sale/(Purchase) of other investments 3983 (8252)
the year 2019-20 rose by 7.2% over the previous year at ESOP Proceeds (net) 18 11
R 8905 crore. Sources of Funds 25424 6161
Capital expenditure (net) 3299 3499
Consolidated Basic Earnings per Share (EPS) from Net investment/(divestment) 9802 255
continuing operations and discontinued operations for Dividend paid 4551 2647
the year 2019-20 at R 68.04 registered growth over Interest paid 2903 2983
previous year at R 63.51. Increase/(Decrease) in cash balance 4809 (338)
Payment (to)/from minority interest (net) 60 (2885)
Return on Consolidated Net Worth Utilisation of Funds 25424 6161
The Net Worth, as on March 31, 2020, at R 66723 crore, The total borrowings as at March 31, 2020 stood at
reflects net increase of R 4348 crore, as compared to the R 141007 crore as compared to R 125555 crore as at
March 31, 2019. The major increase is in the standalone
position as on March 31, 2019. Return on Net Worth
entity to support the increasing business volumes,
(RONW) for the year 2019-20 was lower at 14.8%,
increase in borrowings of Financial Services and higher
compared to 15.3% in the previous year. RONW for the debt availed to complete operationalization of the
current year has been adversely affected by Covid impact Hyderabad Metro Rail concession. The gross debt:equity
and provisions in financial services business. ratio increased to 1.85:1 as at March 31, 2020 from
1.81:1 as at March 31, 2019. The net debt:equity ratio
Liquidity & Gearing stood at 1.53:1, as at March 31, 2020 from 1.52:1 as at
Cash flow from operations (excluding change in loans March 31, 2019.
and advances towards financing activities) decreased to Details of significant changes in key financial ratios
R 6687 crore as compared to R 9100 crore in the previous along with explanation:
year due to delay in customer collections, impacted by In compliance with the requirement of listing regulations,
fund constraints with Government and Public Sector the key financial ratios of the Group were examined and
clients. Borrowings increased by R 13874 crore to sustain the ratios with significant changes i.e. change of 25% or
higher level of operations and increased working capital more as compared to the immediately previous financial
requirements in a liquidity-constrained environment. year have been provided hereunder along with the
During the year, borrowing was supplemented by explanation for the changes:
additional funds generated from divestment of stake in Sr.
Particulars 2018-19 2019-20
subsidiary companies, profit on sale of investment and No.
treasury income. (i) Interest Coverage ratio* 8.93 6.12 -31.5%
(Interest cost excludes
Financial Services and
Funds were used mainly for purchase of stake in Mindtree Finance Lease Activity)
Limited. Further, the Group incurred capital expenditure (ii) Net Working Capital % of 18.1% 23.7% 30.9%
of R 3299 crore (including capex for full operationalisation Sales** (Excluding Financial
of Hyderabad Metro Rail concession). Funds were also Services & Corporate)
utilized for payment of final dividend for FY 2018-19 * The significant change in the Interest Coverage Ratio for
R 2526 crore, towards interim dividend of R 1404 crore for FY 2019-20 has been due to implementation of Ind AS 116
FY 2019-20 and DDT R 621 crore. The cash outflow also resulting in accounting for interest on lease liability, as well
as full commissioning of L&T Hyderabad Metro Rail leading
included net interest expense of R 2903 crore during the to cessation of capitalization of interest on borrowing done
year FY 2019-20. hitherto.
** The significant changes in Net Working Capital % of sales is due
Consequently, there was a net increase of R 4809 crore in to delay in customer collections, impacted by fund constraints
the cash balances as at March 31, 2020 as compared to with Government and Public Sector clients as well as support
the beginning of the year. extended to vendors and sub-contractors in a tight liquidity
environment.

317
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

B. SEGMENT-WISE PERFORMANCE (GROUP) countries. International order wins were predominantly in

1. Infrastructure Segment Power Transmission & Distribution and Metallurgical and
Material Handling business.
Order Inflow
R crore Gross Revenue from Operations
7.2%
140000 – R crore
0.8%
120000 – 100000 –
102678
100000 – 95743
16% 14846 29509 29% 80000 – 73204 73777
80000 –
19109 17898 24%
60000 – 60000 – 26%
40000 – 84% 80897 71%
73169 8.5%
40000 –
20000 – 8.1%
74% 54095 76%
0– 20000 – 55879
–

–
2018-19 2019-20
Domestic   International 0–

The Infrastructure segment won orders worth
R 102678 crore, higher by 7.2% over the previous year,
mainly from Public Sector Undertakings. Large value
orders were bagged by Building & Factories, Power
Transmission & Distribution, Water Effluent Treatment
and Metallurgical and Material Handling businesses.
Investment by the Maharashtra State Government in the
affordable housing segment and by private sector players
in the airport and health segments boosted the order
inflow momentum of the Buildings & Factories business
vertical. Heavy Civil Infrastructure registered growth
with receipt of orders in Hydel and Tunnel business, the
Power Transmission & Distribution business recorded
growth on receipt of key international orders, while the
Metallurgical and Material Handling business registered
significant growth with the receipt of a large value Gold
beneficiation plant order and railway freight facility
package in the MENA region.
The order inflow momentum was maintained in the Smart
World & Communication business with the receipt of an
order for an army network management system from
the Indian Army and in the Water Effluent & Treatment
business with order wins in the water supply and
distribution segment.
De-growth was registered in the Transportation
Infrastructure business due to deferral of some large value
award decisions.
The share of international order inflow for the
Infrastructure segment increased to 29%, from 16% in
previous year. The Middle East region contributed 65% of
the international order inflow. Lower contribution from
South East Asian countries was compensated by a higher
proportion of orders from African countries, reflecting
the result of past efforts to expand presence in those
–
2018-19 2019-20
Domestic   International OPM %
Infrastructure segment clocked gross revenue of
R 73777 crore for the year 2019-20 registering a nominal
growth of around 1% over the previous year. Revenue
was impacted due to lack of progress in jobs in Andhra
Pradesh with the stand taken by new state government
to reassess new awards, execution challenges in some
projects viz. obtaining approvals, securing Right of
Way, rationalisation of fund allocation in certain states,
and stay on execution due to litigations concerning
environmental clearances. The sharp deceleration in
execution in the last few weeks of the year on account of
the pandemic and consequent regulatory clampdown on
business activities also impacted revenue growth for the
year as a whole.
Revenue from international operations constituted 24%
of the total revenues of the segment during the year
as compared to 26% in the previous year with some
large value orders in the opening Order Book nearing
completion, especially in Heavy Civil Infrastructure.
Infrastructure Segment earned operating profit of
R 5912 crore. There was a decline in margins from 8.5%
to 8.1% due to cost and time overruns in certain projects
in Transportation Infrastructure and Buildings & Factories
business. The decline was also due to the margin impact
caused by Covid-19 led slowdown / lockdown in March
2020 and lower margin earned during the year in Heavy
Civil Infrastructure business partially offset by realization
of claims in Transportation Infrastructure and Water &
Effluent Treatment business.
The Funds employed by the segment at R 28279 crore as
at March 31, 2020 registered a sharp increase of 18.1%

318
vis-à-vis March 31, 2019, mainly due to stalled projects diminishing revenue contribution from a Bangladesh
and fund allocation issues in certain State Government gas-fired power project nearing completion in 2019-20.
contracts. The funds employed were also impacted by the
Segment operating profit has improved from R 177 crore
mandated stoppage of business activity / lockdown in the
in previous year to R 275 crore in FY 2019-20, with the
last 2 weeks of the financial year, a period that is usually
margin improving to 12% mainly due to reversal of
characterized by a high level of customer collections.
provision on receipt of favourable arbitration award.
2. Power Segment
The Funds employed by the segment stood at
Order Inflow R 1745 crore as at March 31, 2020 registering a growth
R crore
>100% of 46.3% over the previous year due to delay in collection
15000 – of retention amount in jobs nearing completion and
12048
12000 – 2% higher carrying value of Investment in Joint Ventures
264 under Power Group, consolidated through equity method
9000 –
under Ind AS.
6000 – 11784 98% 3. Heavy Engineering Segment
2919
3000 – 16% 475
84% 2444 R crore
Order Inflow
0–
(41.7%)
–

2018-19 2019-20 6000 –

Domestic   International
5000 –
The Power segment order inflow registered a substantial 4049
4000 –
growth by bagging orders worth R 12048 crore as
compared to R 2919 crore in the previous year. The 3000 – 2728 2361
67%
segment received a large domestic order for an ultra- 2000 – 1343 57%
supercritical thermal power project, an order for a 1000 –
33% 1321 1018 43%
comprehensive Boiler Island package by L&T–MHPS Boiler 0–
–

–
JV, consolidated for L&T share, and several Flue Gas 2018-19 2019-20
Desulphurisation projects following the mandate from Domestic   International
Ministry of Environment, Forest and Climate Change The Heavy Engineering segment recorded an order inflow
to install emission control equipment in a timebound of R 2361 crore for the year ending March 31, 2020,
manner. lower by 41.7% as compared to the previous year
due to deferment of orders, coupled with the loss of
Gross Revenue from Operations international orders on aggressive pricing from global
R crore (41.8%) fabricators in a low-demand-cum-surplus-capacity
6000 – scenario. Share of orders from international business
5000 – decreased from 67% in the previous year to 57% in
3983 12.0% FY 2019-20, largely attributable to reduced prospects of
4000 –
3000 – 35% 1384 Marine Pollution Control equipment.
2318
2000 – 2599 386 17%
65% Gross Revenue from Operations
1000 – 4.5% 1932 83% R crore
27.5%
0– 4000 –
–

2018-19 2019-20
3500 – 3205
Domestic   International OPM % 2514
3000 –
Despite the surge in order inflow, the Power segment’s 2500 – 24.5% 1428 45%
revenue declined y-o-y by 41.8% to R 2318 crore, since 2000 – 47% 1184
the new orders are yet to pick up execution momentum, 1500 –
1000 – 21.5%
as well as tapering of execution in coal-based projects 55%
500 – 53% 1330 1777
nearing completion. Composition of revenue from 0–
–

international projects decreased to 17% of total revenue 2018-19 2019-20

for the segment, from 35% in previous year due to Domestic   International OPM %

319
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

The segment’s gross revenue of R 3205 crore registered a
growth of 27.5% compared to the previous year on the
back of good progress in executing the Opening Order
Book of the refinery, oil and gas equipment business.
Revenue from international operations constituted 45%
of the total revenue for the segment.
The segment recorded an increase in the operating
profit for the year at R 612 crore. The margin, however
registered a decline from 24.5% to 21.5% due to
prudential provisions made in an international project,
partially offset by cost saving initiatives and a favourable
claim settlement.
The segment’s gross revenue of R 3979 crore improved
by 3.4% compared to the previous year. Growth was
mainly contributed by the brisk execution of a tracked
artillery gun order and partially offset by decline in
the Shipbuilding business. Revenue from international
operations was steady at 9% of the total revenue for the
segment.
The operating margin improved from 16.2% in the
previous year to 18.2% in FY 2019-20 due to cost
savings across multiple projects in the Defence &
Aerospace business and a favourable claim settlement in
Shipbuilding business.

Funds employed by the segment as on March 31, 2020 Funds employed by the segment as on March 31, 2020
at R 2906 crore, registered an increase of 16.1% over the at R 3014 crore increased by 5.3% y-o-y, due to delay in
previous year on higher working capital due to pending collections from a fund constrained MoD.
milestone completion in some refinery projects. 5. Hydrocarbon Segment
4. Defence Engineering Segment Order Inflow
R crore
(24.8%)
Order Inflow 40000 –
R crore
(25.9%) 32000 –
5000 – 27871
24000 – 20964
4000 – 45% 12492
3016 7641 36%
16000 –
3000 – 17% 506 2233
8000 – 55% 15379
2000 – 460 21% 13323 64%

83% 2510 0–
1000 –
–

–
1773 79% 2018-19 2019-20
Domestic   International
0–
–

2018-19 2019-20
The Hydrocarbon segment achieved order inflows of
Domestic   International
R 20964 crore, registering a decline of 24.8% due to
The Defence Engineering segment recorded an deferment of orders mainly in the Onshore vertical.
order inflow of R 2233 crore for the year ending The share of international orders decreased to 36%
March 31, 2020, lower by 25.9% over the previous year in FY 2019-20 from 45% in the previous year, which
with deferment of orders from the Ministry of Defence. included one mega order received in Algeria. The
The share of international orders for FY 2019-20 was Order Book, at R 44,130 crore, however, still provides
higher at 21% as compared to the previous year. multi-year revenue visibility even in the current uncertain
environment of low oil prices.
Gross Revenue from Operations
R crore Gross Revenue from Operations
3.4% R crore 15.0%
6000 – 25000 –
5000 –
3979 20000 – 17445
4000 – 3849 15176
9% 333 342 9%
15000 –
3000 – 7552 43%
3516 18.2% 53% 7971
2000 – 10000 – 10.9%
91% 3637 91% 8.8%
1000 – 16.2%
5000 – 9893
47% 7205 57%
0– 0–
–

2018-19 2019-20 2018-19 2019-20

Domestic   International OPM % Domestic   International OPM %

320
Segment revenue at R 17445 crore for the year grew by
15% y-o-y, enabled by peaking of execution activities
in key projects. The share of International revenue in
FY 2019-20 was lower at 43% of the total revenue of the
segment as compared to 53% in the previous year, with
closing stage progress of some large value international
orders in the opening Order Book.
The segment’s operating profit for the year improved to
R 1898 crore, with the margin increasing by 210 basis
points from 8.8% to 10.9%, reflecting operational /
execution efficiencies and claim settlements in a few
projects.
Funds employed by the segment as on March 31, 2020
at R 2880 crore increased by 35.3% as compared
to March 31, 2019, mainly due to the increase in
current outstanding from customers in a tight liquidity
environment.
6. IT & Technology Services (IT & TS) Segment
The Company acquired a controlling stake of 60.59%
in Mindtree Limited as of 2nd July, 2019. Subsequent
to the acquisition of control, the financials have been
consolidated from the second quarter of FY 2019-20
and reported under the IT & TS segment. The resultant
figures for the current periods are not comparable with
the previous periods to that extent. An additional 0.49%
stake was acquired in March 2020, taking the total
shareholding as on March 31, 2020 to 61.08%.
Gross Revenue and OPM%
53.5%
R crore
28000 –
24000 – 22335
20000 –
16000 –
14553
12000 –
23.2%
8000 –
20.9%
4000 –
0–
–
2018-19 2019-20
Revenue   OPM %
The IT & TS segment comprises publicly listed companies
L&T Infotech Limited and its group of companies, L&T
Technology Services Limited and its group of companies,
and Mindtree Limited and its subsidiaries. The segment
recorded a gross revenue of R 22335 crore for the year
ended March 31, 2020, registering a growth of 53.5%
over the previous year, including R 5915 crore on account
of the Mindtree acquisition in FY 2019-20. Excluding
Mindtree, the growth would have been 13% on a like-to-
like basis. International revenue constitutes a steady 91%
of the total revenue of the segment. Like other businesses
within the Group, the IT&TS Segment was also initially
affected by the transition challenges of work-from-home /
lockdown situation that prevailed towards the end of the
year. The businesses have, however, quickly ramped up
the work-from-home business model on various projects
under execution during the lockdown period in line with
approvals obtained from customers. The end-customer
geographical segments in the US and Europe continue
to witness stress due the pandemic that has severely
impacted these geographies.
The Segment’s Operating Profit was at R 4635 crore for
the year 2019-20 as compared to R 3336 crore in the
previous year including a contribution of R 951 crore from
Mindtree. The Operating Margin declined by 230 basis
points, mainly on account of an increase in manpower
cost, coupled with a drop in utilization and donations to
the PM Cares fund set up for Covid-19 relief purposes.
The Funds employed by the segment as on
March 31, 2020 at R 19638 crore increased by 178%
compared to March 31, 2019 mainly due to investment in
goodwill and intangible assets of customer contracts on
acquisition of Mindtree Limited.
During the year, the Company divested 4.26% stake in
L&T Technology Services, towards meeting the regulatory
requirement of minimum public shareholding of 25%
within three years from listing of its shares. L&T’ s
shareholding in LTI and LTTS as on March 31, 2020 is
74.53% and 74.62% respectively.
7. Financial Services (FS) Segment
The Financial Services segment comprises Rural,
Infrastructure and Housing Finance and Asset
Management. The segment’s revenue grew by 9.4% y-o-y
at R 13822 crore for the year FY 2019-20 aided by growth
in the loan assets of ‘focused’ business lines.
Gross Revenue
R crore 9.4%
20000 –
15000 – 13822
12638
10000 –
5000 –
0–
–
2018-19 2019-20
321
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review
Disbursal of fresh Loans and Advances in Infrastructure,
Real Estate, Micro Loans and Farm portfolio amounted to
R 37160 crore during the year ended March 31, 2020 – a
decline of 36% y-o-y in a year characterized by multiple
macroeconomic concerns that beset the financial
services sector at periodic intervals. The Loan Book
stood at R 98384 crore as at March 31, 2020, marginally
lower than the previous year. The Net Interest Margins
(including fee income) at 7.2% improved over 6.8% in
the previous year on the back of continued efforts to
improve asset quality and profitability of operations, aided
by the focus on increasing share of retail component in
the Loan Book.
This Segment was also adversely affected by the Covid-19
pandemic by way of abrupt stoppage of disbursements
at the year-end, extension of moratorium to customers
through RBI directives and introduction of additional
statutory provisioning requirements on account of such
moratorium.
Loan Book and NIM %
R crore
100000 –
99121
99000 –
98384
98000 –
7.2
97000 –
6.8
96000 –
95000 –
–
2018-19 2019-20
Loan Book   NIM%
The Gross Non-Performing Assets (GNPA) ratio
improved to 5.4% as at March 31, 2020 from 5.9%
as at March 31, 2019. Net NPA ratio has also reduced
to 2.3% as at March 31, 2020 against 2.4% as on
March 31, 2019.
Average Assets Under Management (AAUM) in the
Investment Management business has remained steady
at R 71056 crore during the year ended March 31, 2020
despite volatile markets and stress in the debt market
funds.
The Financial services business is in the process of
divesting its Wealth Management business to IIFL
Wealth, and is awaiting regulatory approvals as of
March 31, 2020.
322
ANNUAL REPORT 2019-20
8. Developmental Projects (DP) Segment
The Developmental Projects Segment comprises
concessions acquired through a competitive bidding
process for the development of Power projects, Roads,
Bridges, Hyderabad Metro Rail and a Power Transmission
Line project. The total portfolio of the Developmental
Projects Group consists of 2 power projects (1 thermal
and 1 hydel), 10 roads and bridges projects, 1
transmission line project and 1 metro rail project. The
metro rail project has been executed under L&T Metro
Rail (Hyderabad) Limited (L&T MRHL) which is a 100%
subsidiary of L&T. Power projects are developed in
SPVs held by L&T Power Development Limited, a 100%
subsidiary, and other projects are developed through SPVs
held by L&T Infrastructure Development Projects Limited,
a Joint Venture in which the Company owns 51%. All
the projects which were under construction have been
commissioned by March 31, 2020, except 1 hydel power
plant, which is expected to be commissioned in early part
of FY 2020-21 on lifting of the lockdown.
Gross Revenue and EBITDA
(4.3%)
R crore
8000 –
7000 –
6000 – 5068
5000 – 4850
4000 – 539
3000 – 522
2000 –
1000 –
0–
–
–
2018-19 2019-20
Gross Revenue   EBITDA
The segment recorded a revenue of R 4850 crore for
the year ended March 31, 2020, lower by 4.3% over
the previous year, which included gains from divestment
of a container port business. The drop in revenue was
also contributed to by a lower Plant Load Factor (PLF) in
Nabha Power Ltd. on account of planned shutdown for
plant overhaul in Q4 FY 2019-20.
The segment clocked an operating profit of R 539 crore
for the year 2019-20, largely in line with the R 522 crore
earned in FY 2018-19, mainly on account of higher
contribution from Nabha Power and Hyderabad
Metro, partially offset by a non-recurring divestment
gain from sale of a Container Port business in the
previous year.
9. Others Segment L&T standalone continues to be the major contributor to
revenue and profits of the Group’s performance.
Gross Revenue and OPM% Order Inflow and Order Book
R crore
8000 – (10.5%)
Order Inflow
7000 –
5935 R crore 6.7%
6000 – 5309
5000 – 150000 –
28.6%
4000 – 3095 125000 –
2941 107627 114825
3000 – 100000 – 16% 17597 27887 24%
20.9%
2000 – 75000 –
2994 2214
1000 –
50000 – 84% 90030 76%
0– 86938
–

–
2018-19 2019-20 25000 –

Industrial Machinery, Products & Others  Realty  OPM% 0–

–
2018-19 2019-20
Domestic   International
The Others segment covers Realty, Construction and
Mining Machinery, Rubber Processing Machinery and The order inflow during FY 2019-20 grew by 6.7% at
Valves businesses. Revenue for the segment registered a R 114825 crore as compared to R 107627 crore in the
decline of 10.5% from R 5935 crore in 2018-19 to R 5309 previous year. The Infrastructure segment contributed
crore in 2019-20. The decline was mainly in the Realty 86% of the total order inflow during the year on receipt
business, which in the previous year included a large of orders from the airport sector, affordable housing
value sale of commercial property and higher hand over sector, and a few international orders. The Power business
of residential properties. Construction Equipment and registered growth with the receipt of orders for an
other allied businesses have recorded a decline with lower ultra-supercritical thermal power project and several Flue
demand for wheel loaders and excavators. The Valves Gas Desulphurisation projects.
business, registered growth with focus on its distribution
The international order inflow increased to 24% of the
business and higher order intake in the previous year. The
total order inflow for FY 2019-20 as compared to 16% in
Operating Margin declined over the previous year, which
the previous year.
included a lumpy gain on sale of commercial property in
the Realty business.
Order Book
II. L&T STANDALONE R crore 1.8%
PERFORMANCE REVIEW
320000 –
L&T’s standalone financials reflects the performance 245628 250151
of Infrastructure segment, Power, Heavy Engineering, 240000 – 16% 39165 49875 20%
Defence Engineering, and Others. The Others segment
comprises of a part of Hydrocarbon business, Realty, 160000 –
Construction & Mining Machinery and Rubber Processing 84% 206463 200276 80%
Machinery. 80000 –

L&T Shipbuilding which was earlier a subsidiary has been 0–

–

merged with the Company with effect from April 1, 2019 As at 31-03-2019 As at 31-03-2020
pursuant to an NCLT Order. Accordingly, the previous Domestic   International
year’s financials are restated for comparison purpose.

323
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

Order Book Composition Operating Expenses and PBDIT

R crore Operating Expenses and PBDIT
4149 5323
2019-20
2% 2% 8.3% [% to revenue]
Infrastructure
8938 (9.3%)
4% Power
3.3% Mfg., Construction &
Defence Engineering
(2.5%) Operating Expenses
13033 Heavy Engineering
5% Others Staff Expenses
7.2%
(7.0%) Sales, Administration &
Other Expenses
218708
87% 81.2% Operating Profit (PBDIT)
(81.2%)
Total Order Book: R 250151 crore as at March 31, 2020 [Figures in brackets relate to previous year]
The Order Book as at March 31, 2020 stood at Manufacturing, Construction and Operating (MCO)
R 250151 crore, 87% of which is contributed by expenses, comprising cost of construction material, raw
Infrastructure segment. International orders constituted materials, components and subcontracting expenses,
20% of the current Order Book. The Order Book growth amounted to R 66882 crore, which is 81.2% of revenue,
was restricted to 1.8% on deletion of some non-moving similar to the previous year.
projects, especially in the Infrastructure segment. Staff expenses for the year at R 5956 crore increased
Revenue from Operations by 3.9% y-o-y mainly due to increase in manpower
count. Staff Cost as a percentage of revenue increased
marginally from 7% to 7.2%.
Gross Revenue from Operations
Sales and administration expenses for the year at
R crore R 2707 crore increased by 32.2% y-o-y, mainly due to
0.1%
120000 – higher Expected Credit Loss provisions on financial and
82287 82384 contract assets, impairment of investment and Donation
80000 –
towards PM Cares Fund in Q4 FY 2019-20.
23% 18787 18122 22%
Profit before depreciation, interest and tax excluding
other income (PBDIT) was R 6838 crore for the year,
40000 –
77% 63500 64262 78% lower by 10.6% over the previous year. The 100 bps
drop in PBDIT at 8.3% of sales is mainly due to higher
0– ECL provisions and cost overruns in some projects in the
–

2018-19 2019-20 Infrastructure segment.

Domestic   International
L&T achieved a revenue of R 82384 crore during
FY 2019-20 reflecting a flat growth over the previous
year, with several execution impediments and delayed
payment challenges from customers in various
Infrastructure projects.
The growth was further impacted due to a decline in
the Power segment’s revenue, since new orders are yet
to gain execution momentum, whilst existing coal-fired
power plant projects are nearing completion. The Realty
business revenues also declined, since the previous
year’s revenue included the sale of a major commercial
property and higher hand-over of residential flats. The
Defence Engineering segment registered growth, on
better progress achieved on execution of the artillery gun
project.
Depreciation and Amortization charge
Depreciation and amortization charge for the year
2019-20 marginally increased by 2.1% and was at
R 1021 crore, as compared to R 1000 crore in the previous
year, with additional depreciation of R 75 crore accounted
on implementation of new accounting standard on Leases
(Ind AS 116).
Other Income
Other income mainly comprises income from the
Company’s treasury operations, dividend and income
earning from Group companies. Other income for the
year 2019-20 at R 2808 crore, increased as compared to
R 2711 crore for the previous year mainly due to higher
earnings on larger treasury investments and dividend from
subsidiaries.
Finance cost
The interest expenses for the year FY 2019-20 at
R 2267 crore were higher by 26.8% vis-à-vis R 1788 crore

324
for the previous year. The increase is mainly attributable Return on Net Worth
to an increase of R 13,795 crore in borrowings as The Net Worth of the Company as on March 31, 2020
at March 31, 2020 compared to borrowings as at at R 52175 crore increased by R 2127 crore as compared
March 31, 2019, as well as a higher quantum of interest- to March 31, 2019, reflecting mainly profit for the year,
bearing customer advances. The average borrowing cost reduced by the payment of interim dividend of R 10 per
for the year 2019-20 was at 7.4% p.a., lower from the paid up equity share in March ‘20.
7.6% p.a. in the previous year.
Return on Net worth (RONW) including Exceptional Items
Exceptional Items for the year 2019-20 at 13.1% is lower as compared to
Exceptional Items of R 610 crore (net of tax) for the year 15.7% in the previous year. The decline is largely due
2019-20 represents gain on dilution of stake in L&T to higher exceptional income in 2018-19, which mainly
Technology Services, while the previous year included included gains on dilution of stakes in LTI & LTTS.
gains on dilution of stake in L&T Infotech and L&T
Liquidity & Gearing
Technology Services, as well as recovery of a receivable
amount under Insolvency & Bankruptcy Code, partly Borrowings increased during FY 2019-20 by R 13452
offset by impairment of some investments in JVs. crore to sustain a higher level of operations, increase in
the working capital and for the acquisition of Mindtree
Profit after Tax and EPS Limited. During the year, additional funds were generated
R crore Profit After Tax from liquidation of other investments, dividend income
9000 – R 1384 crore and Treasury income R 518 crore.
7491 Besides the Mindtree acquisition and operations, the
7500 –
funds were deployed for capex of R 1309 crore, payment
6679
of dividend R 4159 crore comprising of final dividend of
6000 –
R 2526 crore for FY 2018-19, Dividend Distribution Tax
of R 229 crore and interim dividend of R 1404 crore for
4500 – FY 2019-20 and net interest expense of R 1893 crore
during the year. There was a net increase of R 464 crore in
3000 – the cash balances as at March 31, 2020 as compared to
the beginning of the year.
1500 –
Fund flow statement v crore
0– Particulars 2019-20 2018-19
–

2018-19 2019-20 Borrowings (net of repayment) 13452 (493)

Profit after Tax (PAT), including exceptional items, for the Sale/(Purchase) of Other investments 3463 (2612)
year 2019-20 at R 6679 crore, registered a decline of 11% Treasury and dividend income 1902 1937
as compared to R 7491 crore in the previous year mainly ESOP Proceeds (net of buyback expenses) 18 11
due to lower operating margin, higher interest expenses Sources of Funds 18835 (1157)
and lower exceptional income. Operating activities 121 (2557)
The Company has opted for the lower tax rate under the Capital expenditure (net) 1309 792
tax ordinance introduced during the year under review. Net investment/(divestment) 10889 (3053)
This has resulted in saving in current tax. The said saving Dividend paid 4159 2597
is partially offset by write down of opening Deferred Interest paid 1893 1528
Tax Asset for revised rate and surrender of Minimum Increase/(decrease) in cash balance 464 (464)
Alternate Tax credit not being available under the new tax
Utilisation of Funds 18835 (1157)
ordinance.
Total borrowings as at March 31, 2020 stood at
The Basic Earnings per Share (EPS) from continuing
R 25785 crore as compared to R 11990 crore in the
operations & discontinued operations for the year
previous year. The loan portfolio of the Company
2019-20 at R 47.59 has declined compared to R 53.43 in
comprises a mix of domestic and suitably hedged
the previous year.
foreign currency loans. The gross debt:equity ratio
Other comprehensive Income (OCI) increased to 0.49:1 as at March 31, 2020 from 0.24:1
Other Comprehensive income during the year reflected as at March 31, 2019. The net debt:equity ratio has
a loss of R 519 crore, vis-à-vis loss of R 118 crore in the increased to 0.31:1 as at March 31, 2020 from 0.08:1
previous year, mainly due to impact of fair valuation of as at March 31, 2019 – the increase has primarily been
investments in Mindtree prior to acquiring controlling driven by increased working capital requirements and the
stake. acquisition of Mindtree Limited.

325
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

III. S
 trategy, Business Model and Resource Allocation
Strategy Formulation
Business strategy formulation seeks to set long-term goals and strategies that help the Company in exploiting its
strengths, identifying and realizing new opportunities and building new capabilities. This is enabled through three plans
with time horizons ranging from long-term (7-10 years) to medium-term (5 years) to short-term (annual). Each plan
dovetails into the next.
Last year, the Company had embarked on the development of a ‘Perspective Plan’, with a long-term view of 7-10 years.
The process started with the identification of emerging megatrends and potential disruptions in current businesses. This
was followed by a call for ideas for new businesses as well as adjacencies and growth areas, conducted through group-
wide exercises, large-scale interactive processes, brainstorming sessions and interactions with experts. Ideas were filtered
based on certain criteria. Some ideas went through a stage-gated assessment and a few were selected for pursuing
further. The exercise culminated in a future outlook for the Group along with seeding of potential new businesses in
Digital Platforms such as the B2B marketplace, skilling platform, etc. The insights garnered from the Perspective Plan
exercise, tweaked for the changed circumstances of the pandemic, would be used for creating the next 5-year strategic
plan.
The strategic plan, which runs for a period of 5 years, is developed through a collaborative and consultative process
across the organization. Formulating the plan involves a lookback analysis of performance against the previous plan,
scanning market opportunities, outlook on investment and identification of critical areas to be addressed. The outcomes
of the exercise are priorities for growth, key initiatives at business unit and corporate level, talent and leadership pipeline
plan, financial resources plan, and broad financial targets for each business. The ensuing year (2020-21) is the terminal
year of the current 5-year strategic plan, ‘Lakshya 21’. The Company would be undertaking the development of next
5-year strategic plan ‘Lakshya 26’, which would lay down the strategic guideposts for the Company from FY 22 to
FY 26. Changes in various industry segments as well as new areas of business, after considering the impact of the recent
Covid-19 pandemic, would get factored into ‘Lakshya 26’. The Strategic Plan usually gets to be reviewed after, say, three
years for mid-course correction, if any.
While the 5-year business outlook and broad financial goals are embedded as an overarching strategic plan, the annual
operating plan is formulated before the commencement of every financial year. This helps provide flexibility in tailoring
annual operating
Strategy and financial
Formulation Schematic:budgets to changing circumstances while keeping the 5-year strategic plan in view.
Strategy Formulation Schematic:
Perspective Plan 5 Year Strategic Plan Annual Plan

• Long Term Business Vision

Objective
• Assessing Global Megatrends
• Assessment Of Emerging
Technologies & New Growth
Opportunities
• Identifying relevant growth
Initiatives
• Mid-Long term Business
Outlook
• Assessment of Global and
Domestic Macro Environment
• 5 Year Business Plan
• Key Strategic Initiatives
• Annual Business Plan
• Financial KPIs: Order Wins,
Revenues, Profits, Working
Capital and ROE Targets
• Operational KPI: Productivity
Targets

Timelines 7-10 years 5 year 1 year

• Business Portfolio • Detailed Growth Plan • Annual Budgets

• Geographical Business Strategy
• Investment In Emerging
Businesses
• Organization Structure
• Leadership Pipeline
Scope • Long Term Capex Outlay
• Assessment of Investment • Order Prospect Pipeline
Environment and Competition
• Bid Management Policies
• Medium Term Opportunities
• Key Account Management
• Talent Management and
Leadership Development • Order Book Execution Plan
• Capex And Liquidity Plan
• Strategic Partnerships
• Resource Allocation
• Portfolio Assessment

326
 Business Model
Value creation by the Group is enabled through leveraging its four business models:
• EPC: The company focuses on its proven core competencies of conceptualizing, executing and commissioning large,
complex infrastructure projects in the areas of Roads and Bridges, Power Transmission & Distribution, Thermal /
Hydel / Solar / Nuclear Power Plants, Water and Irrigation Infrastructure, Residential, Commercial, Institutional and
Factory Buildings, Airports, Metro and Conventional Railways, Onshore and Offshore Hydrocarbon facilities and
Metallurgical projects.
• Manufacturing: Manufacturing is mainly concentrated around Defence and Shipbuilding, heavy custom-built
equipment catering to process industries, Electrical Products and Systems (made-to-stock and made-to-order),
Material Handling Equipment and Industrial Products & Machinery. The company has extensive manufacturing
facilities at Hazira, Vadodara, Ahmednagar, Talegaon, Chennai, Coimbatore, Kattupalli in India and Oman, UAE,
Saudi Arabia, Malaysia in international geographies.
• Services: The services businesses cater to sectors of Information Technology (through LTI and Mindtree), Technology
Services (through LTTS), Smart World & Communication, Real Estate and Financial Services (through LTFHL).
• Development: The Company has also undertaken development projects such as the Hyderabad Metro, road
operations and tolling (through IDPL), Nabha Power and Uttaranchal Hydel Power, among others.
Business Portfolio Schematic
Business Segment Schematic:
The Group is present in various business segments, which are shown below:

Infrastructure Energy

• Buildings & Factories • Hydrocarbon Engineering

• Transportation Infrastructure • Power
• Heavy Civil • Power Development (Nabha Power,
• Power Transmission & Distribution Others)
• Water & Effluent Treatment
• Metallurgical & Material Handling
• Hyderabad Metro Engineering,
• IDPL (Road Tolling & Operations) Procurement &
Construction

Manufacturing and Defence Services

• Defence and Shipbuilding • Realty

• Heavy Engineering • Information Technology
• Machinery & Industrial Products • Technology Services
• Others (Construction & Mining • Financial Services
Equipment, Valves etc.) • Smart World & Communication

327
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

Portfolio Strategy
The portfolio strategy aims to de-risk the revenue while improving profitability in the pursuit of growth. This strategy
focuses on:
• Complementing the mature businesses with growth-stage businesses, with a focus on asset-light, capex-light and
high-margin businesses. The Group is also trying to reduce exposure to asset-heavy businesses. Businesses requiring
periodic capital infusion such as Financial Services will be reassessed from time to time in the context of emerging
strategic significance.
• Well-balanced and geographically diversified businesses across domestic and international markets. Over 35% of
the business comes from international markets (primarily the Americas, Middle East & Africa and Europe). To further
de-risk the geographical concentration and pursue new growth opportunities, the focus on few more high-potential
countries in Africa and ASEAN region will be enhanced.
• Balancing the cyclical nature of the EPC business through a portfolio of manufacturing and services businesses. The
‘Services’ businesses contribute over 25% of the Group’s revenues. With the aim of better profitability and a stable
revenue profile, the Group intends to step up the proportion of services business while factoring the growth in the
traditional EPC and manufacturing businesses. The acquisition of Mindtree Limited was a step in this direction.
• Supplementing the standalone offerings with partnerships: For the EPC and manufacturing businesses, the
Company has partnered with several large global process and technology licensors, and for the IT and Technology
Services businesses, the group has extensive partnerships with established global software product and technology
companies. These engagements enable the group to offer a bouquet of value-added services to customers in
different businesses.
Businesses and offerings are closely linked to global megatrends and the Company continues to build on these to
address future challenges.

328
Our Business Offerings Backed by Megatrends

High rise buildings for better utilization of land

space (B&F)
Underground multi-level car parks (Geo)

Urbanization
Redesigned utility networks (PT&D, WET)

Safe and Smart cities (SWC)

Increasing population
density in cities leading to Renewables – Solar, Energy
various challenges e.g. Storage (PT&D, HC)
congestion, call for better
solutions with improved
service levels Green buildings (B&F) Sustainability
Water Recycling and
Reuse solutions (WET)
Use of waste materials e.g. Fly Ash,
Climate change and
furnace slag, c&d waste in construction resource scarcity; need for
Energy efficient manufacturing units solutions to balance global
needs with environment
Water neutral campuses
Mass Rapid Transit Systems (TI, HC)

World class airports (B&F, TI)

EV and Autonomous systems (LTTS)

Mobility
Water Treatment and sewage
systems (WET)
Expressways & elevated corridors (TI)

Safe, fast, cheap and

environment friendly Affordable & Mass Housing
solutions for people and (B&F) Demographic
goods Challenge
Electricity distribution systems
and microgrids (PT&D)
Financial services (LTFS)
Universal coverage for basic
amenities, keeping up with
growing demands for global
Big Data, AI / ML in BFSI, Retail and
population
Media (LTI, LTTS, MT)

Automation, IoT in Manufacturing, HiTech, Industrial

Products, Medical devices (LTTS, L&T-NxT)
Digitalization
Cloud, Cybersecurity (LTI, MT)

Mobile, Drones, AR/VR/MR (LTI, LTTS, MT)

Technology and services offerings
to aid new age businesses across Platforms (B2B marketplace, skilling)
various domains

329
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review ANNUAL REPORT 2019-20

Strategic Thrust and Direction

The focus of the Group’s strategy is to create economic value for its shareholders, investors and clients while generating
social and environmental value for its employees and other societal stakeholders. This is enabled by:
• Ensuring efficient conversion of the Order Book into healthy margins through execution, operational excellence and
digitalization initiatives
• Driving growth of the services businesses which have a higher RoE profile
• Maintaining an optimum mix between domestic and international business
• Managing financial resources for the growth of the businesses and strong financial health to facilitate access to
capital markets, as and when required
• Incubating new businesses to tap future growth opportunities
• Engaging with start-ups to access innovations to enhance capabilities and develop new offerings
• Unlocking capital from non-core businesses and assets earning sub-par returns
• Leveraging digital solutions and analytics across various parts of its businesses, spanning areas such as remote asset
management, material tracking, employee productivity enhancement, safety and procurement, among others
• Focus on businesses contributing to environment sustainability such as solar, energy storage, water reuse and
recycling
• Thrust on opportunities linked to achieving the Sustainable Development Goals, like access to clean water for
everyone, reduction in consumption of virgin material in construction, energy efficiency solutions, etc.
The Group retains its thrust on improving ROE.
Resource Allocation:
The Company has a well laid-out plan of resource allocation to meet its strategic goals which includes:
• Maintaining adequate liquidity on the Balance Sheet to exploit growth opportunities and fund emerging and high
growth businesses
• Prudent allocation of resources (Capex and Working Capital) to fund growth in different businesses. Financial
resources are monitored and directed at a central level with mandates for control at a local level
• Attracting and retaining a robust and thriving talent pool through employee engagement programmes, monetary
and non-monetary incentives, leadership development initiatives, offering professional development opportunities
and fostering a conducive organisation climate. The Company has evolved a series of structured HR policies to
enable this resource allocation
• Long-term lasting engagements with labour sub-contractors to ensure a steady augmentation of resources at project
sites
• Long-term engagement with vendors of services, materials and equipment to provide adequate resources for
business growth in various business verticals
• Maintaining strong financial health to facilitate raising of resources from Capital Markets as and when required
• Ensuring judicious allocation of manpower and monetary resources to company-wide sustainability and growth
initiatives such as CSR, Digitalisation and operational excellence programs

330
 IV. R
 isk Management
The Company has an institutionalised Enterprise Risk Management framework, which is continuously reviewed and
benchmarked with industry best practices. The Audit Committee and the Risk Management Committee are two Board
committees that oversee the adequacy and effectiveness of the risk management framework and processes. Each
business vertical has in place policies, structures and procedures to cater to the unique nature of its business aligned
within the overall Enterprise Risk Management framework.
During the year, an Enterprise Risk Management (ERM) system for digitalizing the risk management processes for
business operations was developed and implemented. This system enables monitoring risks across projects in various
geographies of operation, provides aggregate risk-weighted portfolio views of businesses and shares learnings across the
organization, etc. An integrated Knowledge Centre portal has also been developed and provides access to information
on risks emerging from economic factors, geo-political happenings, financial markets, etc. It also provides a platform for
assessment of counter-party risks and feeds useful updates to enable informed, fact-based decision-making.
The Company’s emphasis on continuous learning has led to the creation of several programmes for improving the
risk awareness across the organization. These include workshops, knowledge sessions, embedded risk management
modules in project management / leadership development programmes and training content deployed on online learning
platforms.
Once again in FY 2019-20 the Company has won CNBC TV18’s prestigious ‘Firm of the Year Trophy - 2019’ for best Risk
Management practices for Frameworks and Systems in two categories – Conglomerate and Technology.
The top enterprise-wide risks for the Company and their mitigation measures are summarized below:
Risk Description Mitigation
Pandemic
Covid-19, declared a pandemic by the World Health A task force comprising members from leadership and
Organization in March 2020, posed a risk to health and Risk Management was formed to assess and develop
safety. It also has had various implications on businesses in suitable mitigation strategies to address the impact of the
terms of slowdown of new orders, delays in execution of pandemic. The Company is following all the lockdown
existing orders and supply disruptions. restrictions imposed by the Government of India.
Construction sites were closed and Work From Home for
employees was enabled with appropriate data security
controls. Standard Operating Procedures including safety
precautions and social distancing norms were prepared in
order to resume operations once the lockdown restrictions
are progressively lifted. To mitigate the risk of supply
disruptions, alternative procurement strategies have
been considered. The Company is also exploring various
contractual remedies to deal with the situation. The above
steps taken along with other measures, will help the
organization to be resilient and help weather any major
shocks.
Geopolitical Risks
Over the last few years, risk on account of sanctions, trade Appropriate mitigation strategies are in place for
barriers, protectionist policies and geopolitical conflicts addressing geographical concentration, strategic sourcing
have increased. options, regular monitoring of international sanctions
and realignment with international partners based on the
geopolitical situation.

331
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review
Risk Description
Slowdown in economy
There has been a slowdown in various sectors like
infrastructure, hydrocarbon, power, defence, metals &
minerals, realty, etc., on account of several factors, such as
budgetary allocation, funding issues, decline in oil prices,
slow pace of decision-making, lack of investment demand,
green initiatives and delays in environmental clearances.
Due to Covid-19 there will be further stress on the
resources available with central and state governments.
Terms of Trade
Over the years, terms of trade have become more
restrictive and stringent both in terms of aggressive
timelines as well as contract clauses such as payment
terms, etc.
Competition
Due to the overall slowdown and limited opportunities,
there has been aggressive bidding from various foreign
and domestic players in the past few years.
Reputation and Brand
The Company has a presence across sectors in various
geographies, and the size and scale of projects being
prospected / executed is of increasing magnitude and
high visibility, hence maintaining its reputation / brand is
paramount.
Cyber Security
As IT systems get increasingly interconnected and with
implementation of various digitalisation initiatives, cyber
security has become a key concern for Governments and
businesses.
332
ANNUAL REPORT 2019-20
Mitigation
Being a diversified conglomerate has helped mitigate the
risk of such a slowdown in some specific sectors, which is
compensated by growth in certain other sectors like water,
airport construction, renewable energy, metro network,
health infrastructure etc. The Company will continue to
seek opportunities and take appropriate measures to
offset the impact of the slowdown and the pandemic. The
Company is also analysing various sectors to identify areas
of growth and reallocate resources accordingly.
Various mitigation strategies are undertaken by the
Company, such as negotiating with the customer for
equitable terms with better value offerings. The Company
also enters into back-to-back arrangements with vendors
and sub-contractors.
The Company’s competitive strength is derived from its
engineering expertise, excellence in executing projects,
particularly the large and complex ones, reputation
for quality, usage of technology, project management
expertise and strong resource base, including the Balance
Sheet strength. The Company has also taken various
initiatives, such as digitalisation and cost-optimisation via
value engineering, and this has helped to win new orders.
The Company addresses the potential risk of erosion of
reputation and brand value through a strong corporate
governance framework and delivering projects on time
and in conformity with contracted quality of deliverables.
It has a Compliance Policy in place, mandating
adherence to a Code of Conduct and Internal Controls,
complemented by regular knowledge-sharing of best
practices across the organisation and mechanisms to track
various social media platforms.
The Company’s Corporate Brand Management &
Communications department also protects and bolsters
the brand in Indian and international markets through a
wide range of online and offline media.
The Company has taken several steps to mitigate the
cyber risks. These include roll-out of an enterprise-wide
cyber security framework that provides for technology
solutions to enforce detective and preventive controls and
employee education to create awareness of cyber risks.
 Risk Description
Execution Challenges
The Company faces execution challenges like
unanticipated geological conditions, availability of work
front, land acquisition and Right-of-Way (ROW), delay
in approvals and clearances from Government agencies,
working in difficult/harsh weather conditions, manpower
issues, etc.
Counter Party Risks
The Company partners with different contractors (joint
venture / consortium projects) across businesses based
on technical requirements / local market conditions. The
partner’s performance and financial strength is crucial for
project success.
Working capital challenges
Project delays and adverse contractual payment terms lead Guidelines have been issued to monitor and manage
to increased working capital requirements.
Claims Management
The EPC business has an inherent risk of timely and
acceptable settlement of claims due to dependency on
various stakeholders for approval and clearances.
FINANCIAL RISKS
Inflation in India remained benign in the first half of
FY 2019-20 but picked up sharply in the second half
mainly due to the rise in food prices driven by supply
concerns. Further economic growth remained a challenge
amidst follow-on concerns on domestic credit growth,
corporate deleveraging cycle and lack of pick-up in
private consumption. The US Dollar remained strong
in FY 2019-20, primarily on the back of strong growth
divergence between the US and rest of the world
including emerging market countries. Slowdown in
manufacturing gripped countries from Europe to China
and various emerging markets in the first half of the
year 19-20. During the second half of the year, risks
pertaining to Trade War and Brexit temporarily abated.
Liquidity infusion by Central banks and Corporate Tax
cuts provided thrust to various asset classes. The Indian
Mitigation
The Company closely tracks the key risks for each project
to ensure timely mitigation with proper escalation and
resolution mechanism as required.
Learnings from past projects are incorporated in the
inter-se agreements with the partners and clauses on
liability of each partner is carefully drafted after legal
due diligence. On a periodic basis the Company carries
out a financial assessment of its key counter parties and
appropriate measures are adopted based on the outcome
of the analysis.
working capital, both at the project level as well as
the business level. The Company also deploys specific
cashflow management strategies at both client and
vendor level, to mitigate working capital challenges on a
case-to-case basis.
The Company maintains a strong documentation and
follow-up protocol with various stakeholders for any
claim management and to ensure timely and equitable
settlement of such claims. Documentation in relation to
Covid-19 / force majeure is being reviewed on a project-
to-project basis and is being suitably taken up with all
stakeholders.
currency depreciated accordingly but less so due to
better fundamentals compared to other emerging market
economies.
The last quarter of FY 2019-20 witnessed elevated
financial market volatility, primarily due to the emergence
of the Covid-19 pandemic, thereby halting economic
activity across the globe. Lockdown and closure of
customer offices, non-completion of certification
inspections and the Company’s inability to generate
invoicing resulted in significant amount of collections not
being realized within the financial year. This has led to
a sharp increase in working capital levels in the current
year, which, for the last 3 years had been on a targeted
improvement path. The Company believes that this is a
temporary setback and hopes to pull back working capital
levels in the next year or two.
333
 MANAGEMENT DISCUSSION AND ANALYSIS Financial Review
Capital structure, liquidity and interest rate risks
The Company maintains a conservative capital structure.
Low gearing levels equip the Company to balance
business stresses on one hand and raise growth capital on
the other. This policy provided the Company the required
flexibility for fundraising at short notice to deal with the
sudden worsening of the working capital due to the
lockdown and also build up a liquidity buffer as the year
FY 2019-20 ended.
The Company has been investing capital into subsidiaries
as scheduled and also to optimise overall Group interest
costs. The Company also completed the acquisition of
shares of Mindtree Limited from a few of the existing
shareholders of Mindtree and the Open Offer, which
evidenced an overwhelming subscription resulting in
acquisition of over 60% stake in Mindtree Limited.
Despite the lower liquidity environment in FY 2019-20
on the back of risk aversion (post defaults by some large
AAA-rated entities in the NBFC sector) by both retail and
institutional investors, slower consumer demand and the
sluggishness around investments in the private sector as
well as disruption caused due to the Covid-19 outbreak,
the Company managed to meet its fund requirements and
also managed to add to the cash and cash equivalents of
the Company from R 7588 crore at the end of December
31, 2019 to R 9998 crore at March 31, 2020.
The Company plans to maintain adequate liquidity on
the Balance Sheet to deal with the ongoing Covid-19
crisis and downturn in economic conditions. With the
implementation of the Large Exposure Framework
guidelines of RBI from April 1, 2019, the banking limits
sanctioned by domestic banks to any of the Group
companies will need to fit within 25% of Tier 1 capital of
banks versus 40% of Tier 1 and Tier 2 capital prevalent
till now. This is likely to constrain the availability of bank
limits (both fund-based and non-fund-based) and also
impact the pricing of the same for the Group unless
some regulatory relaxation is granted and may have some
adverse impact on the growth plans of the Group.
The Company judiciously deploys its surplus funds
in short-term investments in line with the Corporate
Treasury policy. It constantly monitors the liquidity levels,
economic and capital market conditions and maintains
access to the lowest cost means of sourcing liquidity
through banking lines, trade finance and capital markets.
Given the extra liquidity buffer planned to be kept on the
balance sheet due to the Covid-19 situation, both the
debt and investments on the balance sheet are likely to
remain elevated in FY 2020-21. The Company dynamically
334
ANNUAL REPORT 2019-20
manages interest rate risks through a mix of fund-raising
products, investment products and derivative products
across maturity profiles and currencies within a robust risk
management framework.
Foreign Exchange and Commodity Price Risks
The businesses of the Company are exposed to
fluctuations in foreign exchange rates and commodity
prices. Additionally, it has exposures to foreign currency
denominated financial assets and liabilities. The business-
related financial risks, especially involving commodity
prices, by and large, are managed contractually through
price variation clauses, while the foreign exchange risks
and residual commodity price risks are managed by
treasury products.
The disclosure of commodity exposures as required under
clause 9(n) of Part C of Schedule V of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations,
2015 in the format specified vide SEBI Circular dated
15th November, 2018 is given separately on page 335 of
this Annual Report.
Financial risk management is governed by the Risk
Management framework and policy approved by the
Audit Committee and authorised by the Board. Financial
risks in each business portfolio are measured and
managed by Corporate Treasury.
Despite currency weakness and elevated financial
market volatility, the Company’s robust financial risk
management processes ensured that financial costs
remain under control.
V. INTERNAL CONTROLS
The Company maintains a robust framework of internal
controls sized appropriately with the nature of business,
size of operations, geographical spread and changing risk
complexity, which are impacted by varying internal and
external factors. This framework forms the building blocks
of a strong corporate culture of good governance.
The Company has aligned its internal financial controls
with the requirements of Companies Act, 2013 and the
globally accepted framework issued by the Committee
of Sponsoring Organizations (COSO) of the Treadway
Commission that operates at both entity and process
levels. The internal controls systems and activities at L&T
cover the operational controls in the business processes
besides the requirement of Internal Controls over
Financial Reporting (ICoFR).
The internal controls are designed to provide reasonable
assurance on recording of transactions and providing
reliable financial and operational information. The
Company has well documented policies, procedures
and authorization guidelines commensurate with the
level of responsibility, besides standard operating
procedures specific to respective businesses. This ensures
the propriety of transactions and authorisations at an
appropriate level of management.
The Corporate Policy on internal controls sets the tone at
the top and serves as the foundation for sound internal
controls. The internal control teams at corporate and
business levels assist the executive management, who are
responsible for establishing, operating and upgrading the
internal controls system. The Corporate team reviews and
assesses the processes, formulates the policies, guidance
notes and advisories. It also shares best practices across
the organisation.
The effectiveness of internal controls is tested by
Statutory Auditors as well as by the Corporate Audit
Services team. The Corporate Audit Services department
develops an audit plan for the Company, which covers
core business operations, corporate departments as
well as support functions. The Audit Committee of the
Board reviews the annual internal audit plan. Significant
audit observations from the independent internal audits
conducted by Corporate Audit Services are presented
quarterly to the Audit Committee along with the status
of the management actions and the progress of the
implementation of recommended remedial measures.
The Corporate Governance is strengthened by a
‘Code of Conduct’ applicable to the employees and
implementation of a separate ‘Code of Conduct’ for
Business Partners, which reinforces ethical behaviour
by aligning them to the unique corporate culture and
values of the Company. The whistle-blower mechanism
forms another integral component of the internal control
system, which is overseen by the Audit Committee. It is
available to both employees and business partners, to
enable them to raise genuine concerns about any actual
or suspected ethical / legal violations or misconduct or
fraud, with adequate safeguards against victimisation,
fear of punishment or unfair treatment. The Company
also has an institutionalised mechanism of dealing with
complaints of sexual harassment through a formal
committee constituted in line with the Company’s Policy
on ‘Protection of Women’s Rights at Workplace’ under
relevant statutory guidelines. This policy has been widely
disseminated across the Company and all complaints are
addressed in a time bound manner.

Disclosure of commodity exposures as required under clause 9(n) of Part C of Schedule V of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015
Sr Commodity Name Exposure in Exposure in % of such exposure hedged through
No INR towards Quantity terms commodity derivatives
the particular towards the Domestic market International market Total
commodity particular
(R crore) commodity (Tn) OTC Exchange OTC Exchange
1 Silver (Buy) 353 60 – – – – –
2 Copper (Buy) 873 18,788 – – 76.90 – 76.90
3 Copper (Sell) (502) (12,221) – – 68.26 – 68.26
4 Steel (Buy) 11735 3,128,865 – – – – –
5 Aluminium (Buy) 546 40,353 – – 86.07 – 86.07
6 Aluminium (Sell) (141) (12,629) – – 34.52 – 34.52
7 Iron Ore (Buy) 44 108,129 – – 42.13 – 42.13
8 Coking Coal (Buy) 55 44,524 – – 42.13 – 42.13
9 Zinc (Buy) 90 5,388 – – 100.00 – 100.00
10 Lead (Buy) 63 4,149 – – 100.00 – 100.00
11 Cement (Buy) 2941 5,911,690 – – – – –
12 Nickel (Buy) 66 660 – – 37.88 – 37.88

335